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 If the dollar can keep its footing going into the long Easter
weekend it will notch up a near 2 percent, and first weekly gain in
a month against the world's other major currencies. [USD/]
The hot streak extended after St. Louis Fed President James Bullard
joined a chorus of officials in highlighting the chance of at least
two rate hikes this year, with the first perhaps as soon as April.
Markets imply only one increase and dealers suspect an orchestrated
attempt by the Fed to shift that thinking.
Equity investors tend to dislike any hint of tighter U.S. policy and
European shares were down over 1 percent, their biggest tumble in
over a week, as they faced a fourth straight session in the red. [.EU]
Oil slipped back under $40 a barrel, while Asia had
dropped overnight too as the relapse in commodity prices and sharp
move in China's yuan took their toll.
"We are going defensive again," said SEB investment management's
global head of asset allocation, Hans Peterson.
"I think it could be a slow adjustment downwards (in risk assets)
for a month or two months but its hard to guess," he added. "The
dollar is rising and macro demand and stronger demand in commodities
is not really there."
It was a busy day of data as well. German consumer morale dipped
figures showed and UK retail sales fell as a comparatively warm last
few months hit clothes retailers.
The euro eased to $1.1164, leaving it well off last week's top of
$1.1342. Sterling also slid to $1.4064 on concerns this week's
attacks in Brussels could aid the campaign to leave the European
Union in June's "Brexit" vote.
Yet for all the Fed's chatter about multiple hikes, the market
seemed far from convinced and more focused on the dollar.
Fed fund futures imply almost zero chance of a move in April and a
rate of just 61.5 basis points by year end. The current effective
funds rate is 37 basis points.
It was also notable that Treasury yields actually fell in response,
with the 10-year back down at 1.87 percent in European trading from
a high of 1.95 percent on Wednesday.
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European yields dropped too, with benchmark German, other euro zone
and UK Gilts in demand as the rise in the dollar and the drop in
commodities from oil to gold to copper knocked inflation
expectations again.
OIL SPILL
Oil had buckled after data on Wednesday showed crude stockpiles had
risen by three times the amount expected in the latest week.
Russia said on Thursday its crude exports were expected to rise
sharply in the coming months and Gazprom Neft, the oil
subsidiary of state giant Gazprom, said its production would rise at
least 5 percent this year.
U.S. crude fell a further 70 cents in Europe to $39.10 a barrel,
after sliding 4 percent on Wednesday. Brent tumbled back below
$40 a barrel and was last at $39.84. [O/R]
"Oil is still the center of attention for many markets. As their
prices fall, markets are turning risk-off. We also should expect
some correction given the fast pace of recovery in various asset
markets," said Tohru Nishihama, senior economist at Dai-ichi Life
Research Institute in Tokyo.
Gold was down at $1,216.80 an ounce, after hitting its lowest
since late February at $1,214.70.
The resource-heavy Australian market lost 1.1 percent as Shanghai
dipped 0.6 percent too.
Japan's Nikkei lost 0.6 percent meanwhile. Trading house Mitsui & Co
dived 7.5 percent after suffering its first ever loss as it was hit
by big writedown on its copper and gas investments.
(Additional reporting by Wayne Cole in Sydney; Editing by Raissa
Kasolowsky)
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